What is in this article?:
- Pork profit outlook improves sharply
- Stronger demand
• The good news came from USDA in two forms.
• The first was the September Hogs and Pigs report which indicated little change in the size of the breeding herd.
• The second was the feed-price lowering impacts of higher-than-expected corn inventories revealed in the September Grain Stocks report.
"While pork production will be higher in the next 12 months, hog prices are expected to be higher, led by strong demand. The stronger demand will come from very low levels of beef available in the domestic market and from continued growth in pork exports," he said.
In the last 12 months, live hog prices averaged about $62 per hundred pounds with a forecast of $66 for the next 12-month period. Feed costs are expected to be lower over these two periods as well, with lower corn and soybean meal prices. Total feed costs are forecast to be about $1.75 per hundred lower in the coming 12 months.
"The pork profit outlook has improved sharply in recent weeks," he added. "Producers had been targeting $7 cash corn prices as the profit fulcrum. Corn prices above $7 would throw many into losses, and prices below $7 could mean profits. U.S. corn prices are expected to average about $5.75 per bushel over the next 12 months, according to cash price forecasts from corn futures markets on Oct. 3," he said.
Of course, these corn prices are well below the $7 fulcrum and turn the profit outlook positive. In the past 12 months, estimated profits were about $5 per head. In the next 12 months, that turns to expected profits above $20 per head, which would be the highest estimated returns since 2006 when corn prices were still low.
"Given the profit outlook, will producers shift their thoughts toward expansion? The answer is that their thoughts may be moving in that direction, but not their actions," he said.
The reason is because uncertainties remain so large. Those uncertainties include concerns about world economic growth and the impacts on pork demand as well as feed prices. When corn prices can change 40 cents in one day, pork producers know the profit outlook can be altered quickly, as was just witnessed in the month of September.
If the current profit outlook holds over the next six months, then further expansion can be expected by the March or June reports in 2012.
According to Hurt, prospects for a return to normal yields in 2012 provide the likelihood for further moderation in corn prices in the fall of 2012. This would also be considered as a positive prospect that would encourage further expansion by mid- and late 2012.